Morality, Practice and Relationships: Public benefit in small scale charitable grant-making

Morality, Practice and Relationships: Public benefit in small scale charitable grant-making Gareth G Morgan Professor of Charity Studies Sheffield Hallam University Chair of Trustees The / Paristamen Foundation Social Justice Philanthropy Conference London 1 March 2013 SHEFFIELD HALLAM UNIVERSITY Centre for Voluntary Sector Research www.shu.ac.uk/cvsr 1 Structure of Presentation 1. Nature of charity and significance of charitable status 2. Definition of charity the public benefit requirement 3. Small grant-making charities 4. Three research questions and tentative findings 5. Emergent Themes 6. Conclusion: Has the new focus on public benefit led to more focus on social justice in the philanthropic behaviour of small grantmaking charities? 2 1

The Nature of Charity Charity is fundamentally an act of love or kindness towards another: it encompasses a central obligation to put others first. All voluntary activity which operates today within a framework of charitable status encompasses that issue of addressing the needs of others now enshrined in the concept of public benefit. There is a difference between charity as a mode of human behaviour, and charity in an organised sense under which people act together for charitable purposes. The understanding of charity as an organised form of activity for which the state provides specific legal protection is usually traced to the Statute of Charitable Uses of 1601 3 Why Charitable Status is Important Charitable status is a fundamental feature in a wide range of voluntary activity. It provides a means by which the state grants protection for specific types of gifts, which in turn leads to benefits of regulation, reputation and tax relief. Systems of charitable status in the jurisdictions of the UK and elsewhere are central to the encouragement of philanthropy and to the governance of a vast range of voluntary and community organisations, large and small. Key distinction between charitable and non-charitable organisations: The terms employed to describe voluntary action are often confusing. The term charity is often used but applies only to those organisations falling within the specific legal definition of the four heads of charity. Organisations are sometimes referred to as not-for-profit but this excludes important co-operative activities. (Deakin 1996, 1) The single most important and overriding feature which sets charities apart from the myriad of organisations constituting the voluntary sector is the requirement that they benefit the public. (Cormacain et al 2001, 1) Central thesis: this distinction is fundamental to any understanding of the third sector/civil society/voluntary sector 4 2

What is a Charity? The Core Principles New definition of charity under Charities Act 2006 (Effective from April 2008 England & Wales) Now in sections 1-5 Charities Act 2011 The definition of charity is not determined by registration When an organisation is registered as a charity it does not mean it has become a charity: It was a charity already Although it may have been operating illegally if not registered in a jurisdiction where charity registration is compulsory or if it used the term charity without being registered A charity is not a certain structure: trusts, associations, companies, CIOs etc Some charities are excepted or exempted from registration All three UK jurisdictions have recent new definitions of charity But new definitions in Scotland and NI are slightly different from E&W In England and Wales, a charity is an organisation which has Exclusively charitable purposes (objects) NOW 13 HEADS UNDER THE 2011 ACT AND Established for public benefit 5 What is a charity? The first test: charitable purposes New Heads of Charity in s3 of Charities Act 2011 (Slightly Paraphrased) (a) The prevention and relief of poverty (b) The advancement of education (c) The advancement of religion (d) The advancement of health or the saving of lives (e) The advancement of citizenship or community development (including rural or urban regeneration, and the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities) (f) The advancement of arts, heritage, culture or science (g) The advancement of amateur sport (h) The advancement of human rights, conflict resolution or reconciliation or promotion of religious or racial harmony or equality or diversity (i) The advancement of environmental protection or improvement (j) The relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage (k) The advancement of animal welfare (l) The promotion of the efficiency of the armed forces of the Crown or emergency services (m) Any other purpose which may reasonably be regarded as analogous to above including existing charity law. 6 3

What is a charity? The second test: public benefit All charities must be established for Public benefit: The purpose must itself be beneficial ( PB in first sense ) The purpose must seek to benefit a sufficient section of the public without undue restriction ( PB in the second sense ) Some charities provide universal public benefit Every person on the planet is a potential beneficiary Some charities only benefit a section of the public E.g. People in a certain geographical community, or certain age ranges or people with specific medical conditions But the section cannot be too small: must be a wide range of beneficiaries There must normally be no private benefit Charities are governed by trustees must be unpaid: except in very exceptional cases, they must be unpaid Any private benefit must be incidental to the public benefit Until the 2006 Act, public benefit was presumed at least in the first sense in the fields of poverty/education/religion but now explicit for all 7 Public Benefit: the English/Welsh Definition Charities Act 2011 (originally in Charities Act 2006) Section 4 The public benefit requirement (1) In this Act the public benefit requirement means the requirement in section 2(1)(b) that a purpose falling within section 3(1) must be for the public benefit if it is to be a charitable purpose. (2) In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit. (3) In this Chapter any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales. (4) Subsection (3) is subject to subsection (2). However, tax law is not devolved in Scotland and NI So this English definition is the basis UK-wide for recognition of charities for tax purposes. 8 4

The Charity Commission s Guidance (2008) CHARITY COMMISSION S PUBLIC BENEFIT GUIDANCE: 1 THERE MUST BE IDENTIFIABLE BENEFIT(S) 1a It must be clear what the benefits are 1b The benefits must be related to the aims 1c Benefits must be balanced against any detriment or harm 2 BENEFIT MUST BE TO THE PUBLIC OR A SECTION OF THE PUBLIC 2a The beneficiaries must be appropriate to the aims 2b Where benefit is to a section of the public, the opportunity to benefit must not be unduly restricted by: 2b(i) Geographical or other restrictions 2b(ii) [Ability to pay any fees charged] 2c People in poverty must not be excluded 2d Any private benefits must be incidental Trustees must have regard to these principles, but do not have to address them all explicitly as part of PBR Principle 2b(ii) deleted in Dec 2011 pending further revision 9 Focus: Small grant-making charities Field of interest: Small grant-making charitable trusts Roughly defined as those under 500K income/expenditure, so below the charity audit threshold Many much smaller e.g 1K to 10K annual grant-making Where the founding philanthropist(s) are still involved as trustees How do smaller grant-making trusts apply the public benefit requirement in practice? Do they see it as: A moral issue making the world a better place? A compliance issue just a requirement of charitable status? An irrelevant issue that can be ignored? Does their approach link to any kind of focus on social justice? 10 5

Approach of this paper Not a systematic study Draws reflexively on the author s personal experience obtained from three sources: (a) a period of 20+ years as chair of small grant-making trust which has sought to develop effective policies for small-scale grant making to a wide range of local charities (b) experiences as professional adviser and independent examiner of the accounts to a number of other grant-making charities; and (c) feedback from participants at the Association of Charitable Foundations Conference in London in November 2012 entitled: Smaller trusts: establishing or reviewing a grant-making strategy. Also draws on two research projects for Charity Commission: Public Benefit Reporting by Charities (Morgan & Fletcher, 2011, SHU) Perceptions of the Public Benefit Requirement (Baker at al, 2012. IVAR/SHU) 11 Key questions Question 1: Do grant-givers feel it is it better at this level to make unrestricted grants (focusing on the support of an organisation as a whole) or project-specific grants? Question 2: Do grant-givers consider it is preferable to give a large number of small grants or a smaller number of large grants (but bearing in mind that even large grants by these trusts will be small compared to major funders). Question 3: Do grant-givers consider it better to focus on one-off grants (often for fixed assets) or grants for operational work (possibly spread over several years)? 12 6

Tentative findings: Question 1 Do grant-givers feel it is it better at this level to make unrestricted grants (focusing on the support of an organisation as a whole) or project-specific grants? Tentative answer: Willingness to make unrestricted grants is still relatively rare amongst smaller trusts even when making grants to other charities May suggest: Reluctance to trust the grant recipient Concerns to be able to identify specific outputs/outcomes from our grant especially for those looking to fund specific changes Desire to fund projects not organisations (cf BIG) Comment It is absurd for those giving very small grants to expect recipients to comply with demanding conditions/restrictions: lack of justice in process 13 Tentative findings: Question 2 Do grant-givers consider it is preferable to give a large number of small grants or a smaller number of large grants (but bearing in mind that even large grants by these trusts will be small compared to major funders). Tentative answer: This is something that philanthropists agonise about i.e. saying no to worthwhile applications that could improve society Sometimes a tendency to give something to as many as possible even if inefficient Others prefer to fund specific projects or items (see Q1) so will only fund if they can cover all or most of the amount requested Comment: This links to one of the central questions in social justice around addressing poverty and inequality no clear answer 14 7

Tentative findings: Question 3 Do grant-givers consider it better to focus on one-off grants (often for fixed assets) or grants for operational work (possibly spread over several years)? Tentative findings: Some very keen on three year funding to see a project through for some years: especially if they can afford to fund most or all the costs Some very anxious about funding salaries or anything where there may be an ongoing obligation: grants for equipment or building projects may seem safer Fundraisers often apply for building projects even to grant-makers which prefer to support operational work However, trusts starting to think more about their grants in public benefit terms: reluctance to fund building projects etc without clear evidence of beneficiaries so there may be a shift taking place 15 Morality Emergent Themes in Grant-Making Approaches The nature of the philanthropic act: what do trustees see as the moral rationale for their grants? Is there a fundamental desire to support social justice? Practice The day to day running of a small trust and the need to operate it economically Relationships The extent to which grant-givers are looking to build relationships with those they support All these are areas for further research 16 8

Conclusions Without more systematic research it is hard to know more widely how small-grant makers behave on these issues Most research focuses either on larger grant-making foundations or on individual philanthropists Relatively little research on behaviour of v small grant-making charities This paper is only a reflection based on personal experience However, SHU research findings show the renewed focus on the public benefit requirement has had an impact since 2008 Grant-making charities are thinking more about ultimate beneficiaries But focus by grant-makers is much less than by fee-charging schools To what extent do Public Benefit and Social Justice overlap? Many grant-making trusts have objects such as advancement of arts, education,sport, animal welfare etc is there an SJ angle here? However, access for the poor is a central requirement of PB so perhaps all charitable grant-makers have a social justice agenda? 17 Morality, Practice and Relationships: Public benefit in small scale charitable grant-making Social Justice Philanthropy Conference 1 March 2013 Gareth G Morgan Centre for Voluntary Sector Research Sheffield Hallam University gareth.morgan@shu.ac.uk www.shu.ac.uk/cvsr THANK YOU Comments on the issues and content of this paper are welcome. At present it is purely a presentation but it is hoped to develop it as a written paper. However, the following papers are closely related to this: Morgan, GG (2012). Public Benefit and Charitable Status: Assessing a 20 year process of reforming the primary legal framework for voluntary activity in the UK (Voluntary Sector Review 3(1) 69-93 special issue in tribute to Prof Nicholas Deakin.) Morgan, Gareth G; Baker, L, Harris, M & Moran, R (2013). The Public Benefit Requirement for Charities in England & Wales: A Qualitative Study of its Impact (The Charity Law and Practice Review, Volume 15, 2012-13, 107-124) 18 9